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News > Economy
Consumer prices edge up
August 17, 1999: 1:28 p.m. ET

CPI rises 0.3% in July, as expected, raising questions about future rate hikes
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NEW YORK (CNNfn) - Consumer prices rose a modest 0.3 percent in July, the government said Tuesday, in line with economists' expectations and sparking questions about how much further the Federal Reserve will raise interest rates.
     Despite surging oil prices, the consumer price index, the government's key inflation gauge, rose for the first time since April after holding steady in May and June. The "core" rate -- excluding volatile food and energy prices -- rose 0.2 percent, also in line with forecasts after June's 0.1 percent increase.
     The report will be closely examined by the Fed, whose policy-makers meet next Tuesday to weigh their next move on interest rates. The central bank raised rates in June to head off inflation after a spike in the CPI in April.
     Most economists expect the Fed to raise short-term rates again at the Aug. 24 meeting. But with the CPI rising so modestly, some economists said there may not be a need for further moves after that.
     "This may stay the Fed's hand down the road," Phil Hill, a Briefing.com economist, told Reuters. While Fed chairman Alan Greenspan has been leery of wage pressure, Hill said, "I don't think this is going to change (the tightening) we'll see on Aug. 24."
     An interest rate increase slows the economy and prevents inflation from cropping up, but it also leads to higher borrowing costs for companies -- and that can hurt stock prices.
     Stock prices initially rallied Tuesday before pulling back. The Dow Jones industrial average was down about 17 points at 11,029 at 1 p.m. ET after surging 65 points early in the session.
     But bonds jumped on the CPI data. The 30-year Treasury shot up 25/32 in price, lowering the yield to 6.03 percent from 6.09 percent late Monday.
     The CPI's release accompanied a pair of other reports pointing to a powerful economy Tuesday. The Fed reported that manufacturing output rose 0.7 percent in July, and the Commerce Department said housing starts climbed 5.7 percent.
     In the CPI report was a 2.3-percent increase in energy costs, accounting for about half the index's increase. Airline fares -- which often fluctuate along with the price of oil -- rose 6.5 percent, the sharpest gain since October 1992 and cigarette prices rose 4 percent.
     On the downside, apparel prices fell 0.9 percent and prices of personal computers and peripherals fell 2.9 percent.
     The figures are the latest sign of rock-bottom inflation even though U.S. economic growth has been chugging along at between 3 and 4 percent a year since the middle of 1996.
     The CPI is up at an annually adjusted rate of 2.4 percent, compared to a rate of 1.6 percent for all of 1998.
     The core rate of the CPI -- which is more closely monitored by economists -- is running at a rate of 1.7 percent so far this year, down from 2.4 percent this time a year ago.
     For that reason, said CS First Boston Chief Economist Rosanne Cahn, "there's absolutely no need for the Fed to tighten [rates] according to this report -- ditto the [producer price index] report that came last week."
     "The Fed isn't worried about price inflation. It's worried about wage inflation," Cahn added. "So these two reports wouldn't have much influence on them unless they had been very bad reports."
     Asked whether the Fed will raise rates next Tuesday, Cahn added: "I think it's a close call -- it's kind of a mind-reading game about how much they will stress one factor over another."
     She said on the one hand, the Fed would like to hike rates because of the tight labor market - but that it is wary about lifting rates too much, which could add stresses to financial markets.Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.